Definition of fulfillment
Under the term fulfillment is a set of logistics and order processing services. E-commerce owners often establish cooperation with fulfillment service companies, entrusting them with a whole list of tasks. This solution is very beneficial for online stores, because – although it generates costs – it takes off from the seller the need to secure warehouse space, invest in machinery or construct complex processes from scratch.
A distinctive element of fulfillment is its full integration with sales platforms. This makes it an excellent solution for online stores, as many processes are fully automated.
What logistics processes does fulfillment take over?
The range of services offered by logistics companies varies. Service providers range from basic packages that include warehousing of goods (and little else) to comprehensive sets of services that allow e-commerce operations to scale with virtually no investment.
The fulfillment services package may include:
- Receiving and managing deliveries of goods,
- storage and cataloging,
- quality control,
- Quantity control of goods,
- Picking and packing orders,
- courier label printing,
- Shipping parcels to transshipment centers,
- Delivery of shipments to collection points and end customers (including overseas),
- handling returns.
Fulfillment for e-commerce step by step
Warehousing and inventory management
Although it is often said that fulfillment handles orders from the moment they are placed until the shipment reaches the customer’s hands, in reality the process starts much earlier. Long before the customer clicks the “buy now” button, logistics companies are at work accepting deliveries, cataloging them and stocking the goods entrusted to them by the principal (vendor).
At this stage, automated WMS (Warehouse Management System) systems are now being used to efficiently manage warehouse space.
Using warehousing services is, of course, a corporate expense that need not be small at all. However, knowing how much it costs to run an online store, entrepreneurs are eager to choose fulfillment anyway. Outsourcing services related to storage of goods and acceptance of deliveries enables e-commerce owners to operate without high upfront costs. It is thanks to logistics centers that it is possible to run small online stores, which can even be located in the entrepreneur’s apartment.
Quantitative and qualitative control
Not every delivery arrives at the destination in the desired condition. An important stage of fulfillment is checking the quality and quantity of goods received. This is another activity that is necessary for online stores. Goods damaged at the warehouse delivery stage must be properly described and returned to the supplier or manufacturer. If quality control fails, the seller is left with defective goods that it can’t sell at full price, and with customer resentment piling up.
Outsourcing quality and quantity inspection of supplies is a great solution for small and medium-sized businesses. This will ensure that purchased goods will pass inspection in a professional environment, carried out using specialized equipment. Achieving a similar level of detailed inspection on your own would be an extremely difficult task for those running small e-commerce businesses.
Order processing
When a customer decides to place an order, and the online store is built on a sales platform integrated with a fulfillment system, the notification goes to the warehouse in real time. The WMS system processes the data and passes it to the appropriate employee. The data packet contains all the information necessary for proper fulfillment:
- The name, quantity and codes of the products purchased,
- contact information of the ordering party,
- selected delivery method,
- shipping details,
- Personalization information (including special packaging methods or additional endorsements, if the store and warehouse provide for it).
The order accepted by the system is taken over by a warehouse employee. He then completes the products, packs them, personalizes them and prepares them for shipment.
Shipping of goods
The completed, checked and packed orders are, in the next step, handed over to the courier company with which the logistics center cooperates. Couriers take over the shipments and distribute them – to pick-up points or directly to customers. But it doesn’t end there – fulfillment can help entrepreneurs at yet another stage of service.
Returns and re-stocking
Customers have the right to return goods under certain conditions. If they choose to do so, it is the fulfillment service company that will accept the return, and then bring the goods back to the warehouse and accept them back into the catalog. In this way, the returned products will go into circulation and can be purchased again – usually with the appropriate endorsement and discount.
Fulfillment in e-commerce – benefits
Saving money
Fulfillment gives merchants access to fully professional warehousing, order handling, quality control and delivery services, in exchange for a fee. Although the cost of fulfillment can vary (depending on the scope of activities, the number of orders handled and many other factors), it is still more advantageous for e-commerce to use this service than to perform all these activities in-house.
Choosing fulfillment:
- You don’t pay to rent or maintain your own warehouse,
- You do not need to hire additional staff to handle goods and orders,
- You don’t have to organize logistics facilities for your store.
Of course, none of the points mentioned are free. However, you can expect that the logistics company will offer you its services at much lower prices. It has the space to do so because its costs are also lower.
Easy scalability
Assuming that you are running your business with an eye toward gradual scale-up, the benefits of fulfillment become even clearer. That’s because you don’t have to incur “inventory” costs – buying equipment and machinery, and hiring people to prepare for increased demand and more work in the warehouse.
Instead, you can arrange with the logistics center for a variable rate. In such an arrangement, you will pay more for service when the number of orders increases, but the charge will decrease when there is a slump. This is especially important if you run a store where seasonality is an important determinant of sales.
Equipment included
The issue of warehouse equipment is also worth considering. A small e-commerce business, wanting to ensure conditions that allow it to work efficiently, would have to invest a considerable amount of money in adapting the warehouse to modern realities. Just the procurement of racks, pallets, carts or transport ramps is a cost that should be counted in tens of thousands of zlotys. On top of that, the installation of the necessary machinery and the implementation of advanced IT systems must be taken into account. All this is not only expensive, but also requires specialized knowledge and… time.
Saving time
Saving time is another powerful advantage of fulfillment. You no longer need to receive and catalog goods, control deliveries, complete orders, pack shipments and perform dozens of other accompanying service activities. Instead, you leave these strenuous activities to professionals, throwing most of your strength into further business development and strategic activities yourself.
Does fulfillment have drawbacks?
Of course. The main drawback of fulfillment stems, as it were, from the very idea of the service. By opting for fulfillment, you are handing over much of the control over the order handling process to an external company. However, any shortcomings in the quality of the service provided will be charged to your company’s account, because you are the one who vouches for the delivery of products to customers. So if the logistics center is late, misplaces the order or fails to secure the shipment properly, dissatisfied customers will direct their resentment to your store.
So it is very important to look closely at the terms and conditions of cooperation with a logistics company. Until you actually start working with a contractor, you won’t be able to judge the quality of the services provided anyway. However, it is worth making an effort to protect yourself in case problems arise in the future.
Fulfillment or dropshipping?
In recent years, dropshipping has been growing in popularity, which – at first glance – may appear to be a solution similar to fulfillment. In reality, however, dropshipping significantly reduces the role of the online store, reducing the seller to the role of an intermediary, with very limited influence on product quality, delivery or even product availability.
This is because in the dropshipping model, the seller does not have its own goods – it uses the supplier’s inventory, which can result in availability problems. It happens that a customer places an order in an online store, the seller passes it on to the supplier, and then learns that the selected products are not currently available.
So what are the advantages of dropshipping over fulfillment? Even lower costs. Under dropshipping, the seller does not have to buy and pay for storage of goods at all. He orders products only when he receives an order from a customer.
Costs of fulfillment – warehouse, handling of returns, shipping of goods
One of the most important questions that online store owners ask themselves is: how much does fulfillment cost? The answer – as usual – is: it depends. The price of the service is affected by, among other things:
- The scope of activities you will delegate to the logistics company,
- Number of orders or returns handled,
- size of parcels to be shipped,
- area of reserved storage space,
- type of stored goods.
On the web you can find fulfillment offers at prices starting as low as PLN 100 per month (just for reserving storage space).
When do fulfillment services for an online store prove necessary?
The answer to this question is simple: when it is no longer profitable to handle orders yourself. Many online stores start by storing goods in their own apartment or garage. The sellers handle the orders, run social media, deal with tax issues, pack the products for shipment and send them to parcel machines or the local branch of the courier company.
This kind of operation saves money, but – as your store grows and the number of orders increases – it can quickly start to overwhelm you. If you feel you’re wasting time and energy on order processing, making it impossible to grow your business, it’s just the right time to find a company to handle fulfillment!
It may also happen that you are just starting out, but simply do not have the space to store goods. Here it is worth remembering the need to create suitable conditions for storing inventory. Not every basement or attic is suitable – it all depends on what you sell. If your products require storage in special conditions (for example, refrigeration), you may be interested in fulfillment from the very beginning.
